Vat on sport betting in Nigeria & Ghana – what investors & biz executives must know

The Nigeria sports betting industry has evolved from an underground phenomenal to mainstream business over the last couple of years, similar trend is being observed in Ghana. The growth of sports betting has attracted investors and entrepreneurs from all corners of the world.

Many have found a gold mine in Nigeria and are expanding rapidly, with mind-boggling figures flying around. It is not surprising that the Nigerian Federal Inland Revenue Service (FIRS) imposed a 7.5% tax on Value-added Tax (VAT) on betting activities in the country, when you add the National Lottery Regulatory Commission (NLRC) levies of 3% on GGR, it takes the total tax to 10.5%. This is still considered very low in comparison with 18.5% Tax in Ghana.

This newly imposed tax in Nigeria and Ghana has been problematic for stakeholders. However, the industry continues to experience substantial growth and has become a high income generator to the Authorities, creating jobs and opportunities for the average Nigerians and Ghanaians. It is important for the Government to carefully evolve regulatory framework that considers both the investors and players as we observe that regulatory agencies within the gambling sector are jostling for relevance that may jeopardize the sustainability and growth of the industry.

Velex Advisory has put together a review of VAT in selected countries in West Africa (Nigeria & Ghana) for the understanding of the industry stakeholders.

Value-Added Tax (VAT) is a tax on products collected in stages by enterprises. It is a wide-ranging tax usually designed to cover most or all goods and services. Still, producers are obliged to pay the Government only the difference between the VAT on their sales and the VAT on their purchases for intermediate consumption or capital formation. VAT is not usually charged on sales to non-residents (i.e., exports) (definition by OECD).

NIGERIAN VALUE ADDED TAX JURISDICTION (FIRS VIEW)

Value Added Tax Act Cap V1 governs the VAT, LFN 2004 (as amended), meaning VAT is a consumption tax paid when goods are purchased and services rendered in a multi-stage tax borne by the final consumer. While all goods and services (produced within or imported into the country) are taxable except those specifically exempted by the VAT Act, note the current charge is 7.5% in Nigeria.

GHANA VALUE ADDED TAX JURISDICTION CASE STUDY (GRA VIEW)

The Ghana Value added tax (VAT) is governed by VALUE ADDED TAX ACT 2013, which translate that Value Added Tax (VAT) is a tax applied on the value added to goods and services at each stage in the production and distribution chain. It forms part of the final price the consumer pays for goods or services. The standard rates of VAT range are 12.5%. Other levies are as follows Value Added Tax (VAT) – Standard Rate = 12.5% comparing. The National Health Insurance Levy (NHIL), which is 2.5% (this levy is not subjected to input tax deduction), while the Ghana Education Trust Fund (GETFund) = 2.5% (this levy is not subjected to input tax deduction).
COVID-19 Health Recovery Levy (COVID-19 HRL) = 1% (this levy is not subjected to input tax deduction).
VAT ON SPORTING BETTING APPLICATION IN

NIGERIA

So analyzing the above VAT in both countries, we realize both countries are using the same method to charge value-added tax on goods and services. However, we take a critical view of the recently imposed 7.5% VAT applied on GGR (Gross Gaming Revenue) for sports betting companies in Nigeria. A clerical example cited in a case at Tax appeal tribunal judgment of the court case of Tourist Company of Nigeria PLC vs Federal Inland Revenue Service on 17th day February 2021. The Value-added tax on GGR is arrived at as the difference between Stakes and winnings; VAT can only be applied on the excess of stakes over winnings. Otherwise, it’s negative; stakes are VAT inclusive. Therefore, VAT is burdened for the betting companies in a bid to stay competitive. 7.5% of GGR are payable to Federal Inland Revenue Service (FIRS).

Controversy & Arguments

The Nigeria NLRC (National Lottery Regulatory Commission) Sports betting Permit holders are required to pay 3% Gross on monthly sales turnover to the National Lottery Regulatory Commission (1%) and National Lottery Trust Fund (2%) not later than the 10th day of the succeeding month.
The same GGR, which suffers VAT, is also subjected to NLRC Taxes, raising concerns over multiple taxations from both Federal Authorities, which are all burdened to the sport betting company. We would suggest one collection agency is preferable in such a case.
Arguments
Section 57 of the National Lottery Act classifies such funds as “Proceeds”, which means the gross monetary amount spent by participants on purchasing tickets in respect of each lottery conducted under a license.
In Summary, proceeds are spent by participants of sports betting enthusiasts on the purchase of tickets to participate in an event whose outcome is not predictable under a license and is, therefore, a risk pool fund. In principle, traditionally, risk-pooling funds are not vatable in Nigeria, and no changes to that in the provisions of the Value Added Tax Act as amended & Value Added Tax Act (Schedule Modification) Order 2020.
This argument is based on the case of the insurance sector, where insurance companies receive insurance for life and non-life insurance premium from the insured.
Insurance Premiums are risk pools and are not subject to VAT as it is under probability the same as Stakes and do not have VAT Legislations.

GHANA APPLICATION

In Ghana, VAT on sports betting has two elements Input and Output. The Input VAT is claimed by the betting company, as it is used to reduce the output VAT; input VAT is claimed on winnings and other Vatable expenses. The betting company’s output VAT is a burden as it is difficult to charge the customers; Output VAT is calculated on the stakes.
Stakes are VAT and Levies inclusive; Rates are as follows: Output VAT-12.5%, NHIL- 2.5%, GETFUND-2.5%. COVID- 1% In TOTAL= 18.5% reverse charge (inclusive).
While input Vat -12.5% reverse charge on winnings and other vatable expenses incurred (Legal, Stationary, and Electricity), the difference is what is paid. The explanation of the above is that VAT is charged on stake, but you have to deduct VAT portions of your winnings in the form of Input VAT as this constitutes the cost of sales; therefore, Stakes are VAT inclusive winnings are VAT inclusive too.
This application aims at transparency as they will make more disclosures in order to claim input VAT. The implications for Input & Output VAT is in situations where we have higher input VAT than Output VAT, they will file Nil, and the deficit will be deducted in the preceding months, but levies are to be paid irrespective.

Common Misconceptions

The most common misconception made by betting companies; Customer deposit being treated as stakes, not all amount deposited by a customer is staked. In some cases, a minimum of 50% deposit must be bet on each customer deposit. Each company T&C differs; customer wallet can be funded and not staked in the deposit period as they wait for their favourite games on the calendar.
Direct Cost of Winnings, charges incurred in paying to win are direct costs and should be included in computations of VAT and not allocated to bank charges as administrative expenses. These direct charges are material concerning the amount of the winnings and must be taken into considerations.

Key Comparison

Nigeria – VAT computation takes into considerations only two variables, i.e. stakes and winnings; services procured in Nigeria are not claimable as input VAT by taxpayers.
Ghana – VAT computations take into consideration more variables other than stakes and winnings. Services procured in Ghana are claimable as input VAT by taxpayers. They can claim input VAT on Vatable expenses incurred, thereby increasing the number of variables considered in VAT computation.

Recommendations – Nigeria

Nigerian Tax authorities should harmonize sporting betting tax collection at the federal level, thereby eliminating multiple taxations. The tax authority also needs to understand the industry and its peculiarities and establish industry-specific taxes to continually attract foreign investors and contribute to industry growth. The Nigeria Tax authorities need to consider the various aspects of sports betting, the online and retail element, and the applicability of taxes. The court case between Rivers State vs. FIRS further stresses the dichotomy within the tax system in Nigeria.

Recommendations – Ghana

Ghanaian Tax authorities should develop specific gaming taxes, which will consider several factors peculiar to sports betting and Global practice. The current levies rates have to attract foreign investors, which will, in return, attract foreign investments. The authorities need to consider the various aspects of sports betting, the online and retail part, and the applicability of taxes.

Velex Advisory Nigeria is the leading gaming advisory firm in West Africa, we facilitate market entry for many international gaming brands and handle their regulatory compliance needs.

Contact:
www.velexgroup.com
[email protected]
[email protected]

 

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.